Commercial Division Blog

Designation of Party As Agent Did Not Make it a Fiduciary

On August 5, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Soleil Capital Ltd. v. Emerging Markets Intrinsic, Ltd., 2016 NY Slip Op. 31496(U), holding that the designation of a defendant as an agent in a contract did not make it a fiduciary, explaining:

The court agrees with EMI and Maass with respect to the breach of fiduciary duty claims. A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation. Such a relationship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm’s length business transactions. Before courts can infer and superimpose a duty of the finest loyalty, the contract and relationship of the parties must be plumbed. If the parties find themselves or place themselves in the milieu of the workaday a mundane: marketplace, and if they do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them.

Generally, where parties have entered into a contract, courts look to that agreement to discover the nexus of the parties’ relationship and the particular contractual expression establishing the parties’ interdependency. However, it is fundamental that fiduciary liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation. In other words, the existence of a fiduciary relationship turns on the reality of the parties’ relationship. If the relationship merely requires the defendant to carry out contractually mandated duties, any remedy lies in a breach of contract claim. Critically, it is the reality of the parties’ relationship that matters, not the terms used to define their roles in the contract.

Here, notwithstanding the MLAs’ use of the word “Agent”, it is evident that EMI was not charged with providing any advice to Soleil and Grandale, either before or after the contracts were executed. EMI merely was contractually obligated to carry out the ministerial duties delegated to it by SRT, Soleil and Grandale. Specifically, it was required to follow SRT’s instructions with respect to the collateral. EMI’s authority as “Agent” of Soleil and Grandale served the purpose of granting EMI the legal authority to transact with the collateral to effectuate SRT’s directions in the event of a margin call. To be sure, Soleil and Grandale claim that SRT’s margin calls were rife with irregularities. However, EMI is not alleged to have done anything other than follow the directions of SRT.